W A ARMSTRONG & SONS LTD v MR A BORRILL [1999] UKEAT 1124_98_2107

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [1999] UKEAT 1124_98_2107Case No Appeal No. EAT/1124/98Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
W A ARMSTRONG & SONS LTDAPPELLANTMR A BORRILLRESPONDENT
Before
Mr Justice Charles Mr S M SpringerDate 21 July 1999
[1]APPEARANCES For the Appellants MR C LEWIS (of Counsel) Instructed By: Mrs J O'Hanlon The Legal Dept National Farmers Union 164 Shaftesbury Avenue London WC2H 8HL For the Respondent MR H FORREST (Solicitor) Humberside Law Centre 95 Alfred Gelder Street Hull HU1 1EP MR JUSTICE CHARLES : This is an appeal from a decision of an Employment Tribunal sitting at Hull the Extended Reasons for which were sent to the parties on 1 July 1998. The subject matter of the appeal is the amount of the redundancy payment due to Mr Borrill (the Applicant before the Employment Tribunal and the Respondent to the Appeal). The appeal raises points as to the construction and application of the following:(a) sections 162 and 221 of the Employment Rights Act 1996 (the ERA),(b) provisions of the Agricultural Wages Act 1948 (the 1948 Act) and the Agricultural Wages Order 1997 (the Order), and(c) the contract of employment.[2]So far as the parties are concerned the appeal concerns a small amount of money. However the main issue raised, and thus our decision, has potentially far reaching effects. In particular this was urged upon us by Counsel for the employer, WA Armstrong and Sons Ltd, the Appellant before us and the Respondent before the Employment Tribunal, (the Employer). Indeed it seems from the Extended Reasons that the decision reached by the Employment Tribunal does not accord with advice contained in the National Farmers Union Handbook. We pause to comment that Counsel for the Employer put his arguments clearly and helpfully, and we did not call for oral argument from Mr Borrill's representative who had provided us with a helpful skeleton.[3]Paragraph 3 of the Extended Reasons accurately summarises the dispute between the parties in the following terms:
"3. The dispute between the parties was this. The Applicant said that his gross basic wage was the total amount set out in the Agricultural Wages Board Order 1997 (Number 1) dated 1 June 1997 namely £160.85. The Respondent said that the gross basic wage was £100.53, being £160.85 less the amount of £60.32 paid by the Respondent directly to the Applicant's Mother in respect of the Applicant's Board and Lodgings as provided for under the provisions of the same Order."
[4]Paragraphs 5 and 6 of the Extended Reasons record the relevant facts and set out relevant provisions of the statutes and the Order. They are in the following terms: "5. FACTS a) The Applicant had worked for the Respondent from June 1977 until his dismissal for redundancy with pay in lieu of notice on 16 January 1998. b) On the occasion of the Applicant's dismissal it was acknowledged by the Respondent that he was entitled to 12 weeks' pay in lieu of notice and 17 weeks' pay in respect of a redundancy payment. c) Each of these payments was made at the rate of £100.53 making pay in lieu of notice in the amount of £1,206.36 and a redundancy payment in the amount of £1,709.01, being a total payment of £2,915.37. d) In accordance with the Contract of Employment between the Applicant and Respondent, the particulars of which required to be set out by statute were contained in a document signed by the Applicant and dated 2 December 1997, the Applicant was:- i) a designated 'Agricultural Worker'. ii) his rate of pay was 'in accordance with the Agricultural Wages Order less board and lodging paid to your mother'. e) At the time of dismissal the Agricultural Wages Order payment was as referred to above that at 5.1 for a worker 19 years and over, namely £160.85. f) By the same Order Table 13.1 relating to payments in kind and their values the amount for Board and Lodgings was £60.32. g) In this employment there were normal working hours set out in the Wages Register and referred to in the written particulars of the terms and conditions of employment. THE LAW A) REDUNDANCY PAY 1. The Employment Rights Act 1996, Section 162 sets out how to calculate a redundancy payment. For that purpose it is necessary to calculate a week's pay. 2. A Week's Pay is defined in Section 221(2) of the Act where there are normal working hours as:- '... the amount of a weeks pay is the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week'. 3. The Agricultural Wages Act 1948 gives power to Agricultural Wages Boards to fix (inter alia) minimum rates of payment to agricultural workers and it provides criminal sanctions but expressly in Section 4(4) does not derogate from 'any right of a worker to recover such sums in civil proceedings'. 4. Section 7 gives the Board powers:- '(a) to define the benefits or advantages (not being benefits or advantages prohibited by the law) which for the purpose of a minimum rate of wages fixed under this Act may be reckoned as payment of wages in lieu of payment in cash'. (b) to determine value (c) to limit or prohibit the reckoning 5. Section 11 of the same Act makes certain agreements void, eg:- '(a) an agreement for the payment of wages in contravention of this Act, or for abstaining from exercising a right of enforcing the payment of wages in accordance with this Act'. 6. The Agricultural Wages Order 1997 (Number 1) is made in exercise of these powers and having set the minimum wage rate applicable in the current case at £160.85 a week at Section 13, 'Payments in Kind', sets out at Table 13.1 the general provisions stating that employers can treat certain benefits in kind as stipulated in the table below as payments of part of the worker's minimum wage, provided they are provided 'in accordance with the worker's contract of employment', 'up to the maximum value of a benefit shown in table 13.1 ....'[5]As appears from the definition of a "week's pay" in s 221(2) ERA the central question in this case is:
"What is the amount payable by the employer under the contract of employment?"
That question raises a point of construction and application of the contract of employment.[6]In our judgment the contract of employment cannot be construed and applied in isolation but has to be construed and applied against the background, and thus in the light of the provisions, of the 1948 Act and the Order. In our judgment when this is done what is payable by the Employer to Mr Borrill under his contract of employment is the minimum wage, or rate of wages, set by the Order of £160.85 and not that sum less £60.32.[7]It follows that we agree with the conclusion reached by the Employment Tribunal and therefore that we dismiss this appeal. REASONS[8]The most relevant term of the contract of employment is set out below with the parts added in manuscript in italics. "REMUNERATION. Under the terms of the Agricultural Wages Structure you are employed as Agricultural Worker Your rate of pay is in accordance with that set out in the Agricultural Wages Order less Board and Lodging Paid to your Mother ."[9]The Employer argues that the correct construction and application of that provision is that Mr Borrill's pay is defined in the contract as the amount specified in the Order less the amount paid to Mr Borrill's mother for board and lodging and thus that one should read that provision as: your rate of pay is £160.85 less £60.32 (i.e. £100.53). The Employer's argument continues that therefore £100.53 is the amount of a week's pay as defined by s 221(2) ERA.[10]In support of that argument the Employer asserts that:(a) such an agreement as to pay accords with the 1948 Act and the Order and is therefore not rendered unlawful or void thereby,(b) in any event £60.32 (the amount paid for board and lodging) is a sum paid to a third party and not to the employee so it is not part of Mr Borrill's pay, it being implicit in s 221(2) that the week's pay is paid, or is to be paid, to the employee, and(c) this result accords with existing authority that payments for board and lodging do not form part of a week's pay for the purposes of calculating a redundancy payment.[11]Section 3 of the 1948 Act provides that one of the powers of the Board is to make an order fixing the "minimum rate of wages" for workers employed in agriculture. It is common ground that Mr Borrill's minimum rate of wages is fixed by the Order at £160.85 a week.[12]Section 4 of the 1948 Act makes it an offence for the Employer to fail to pay to Mr Borrill wages at a rate not less than that fixed by the Order. So, pursuant to (and having regard to the terms of) the 1948 Act and the Order the Employer must pay the minimum rate of wages or more to Mr Borrill.[13]As appears from our earlier citation of the Extended Reasons s 7 of the 1948 Act provides that one of the functions of the Agricultural Wages Board for England and Wales is to: "define the benefits and advantages ..... which for the purposes of a minimum rate of wages fixed under this Act may be reckoned as payment of wages in lieu of payment of cash ", and to "determine the value at which, for the purposes aforesaid, such payments or benefits may be reckoned" (our emphasis).[14]In our judgment, it follows from s 7 that in placing a value on board and lodging (and the other benefits listed in Table 13.1 -- e.g. a midday meal -- which, like board and lodging may not be, but can be, provided by the making of a payment to a third party) the Order is doing so for the purposes of defining and valuing benefits that an employer can reckon as payment of wages in lieu of payment of cash. It is thus identifying how an employer can satisfy its obligation to pay not less than the minimum rate of wages and is not reducing the minimum rate of wages or pay.[15]Indeed s 13 of the Order makes this clear in its introduction of the relevant table (Table 13.1) and goes further by providing that:
"They (the benefits) must be provided in accordance with the worker's contract of employment."
The Order also makes it clear that the values specified in the table are maximum values.[16]As appears from our earlier citation of the Extended Reasons s 11 of the 1948 Act provides that an agreement for the payment of wages in contravention of the 1948 Act is void.[17]In our judgment the scheme and effect of the 1948 Act and the Order is that:(1) the Employer is to pay Mr Borrill a minimum rate of wages or pay but can, in part, satisfy that statutory obligation by providing defined benefits, and(2) pursuant to powers under the 1948 Act the Board determines: (a) the minimum rate of wages or pay that the employer must pay if it is to avoid committing an offence under s 4, (b) what benefits the employer can treat as payment of the minimum rate of wages or pay, and (c) the value of those benefits for reckoning what can be treated as payment of wages or pay in lieu of payment in cash.[18]It follows that in our judgment the scheme and effect of the 1948 Act and the Order is not that the minimum rate of wages or pay (and thus the wages to be paid under a contract of employment to which the 1948 Act and the Order apply) can be reduced or altered if, in addition to the weekly payments cash that are made, benefits are provided to a value which taken together with the cash payments made equal or exceed the minimum rate of wages set by the Order. The essential reason for this is that the 1948 Act and the Order provide that the primary or minimum obligation on the employer is to pay a minimum rate of wages and the additional effect of s 7 of the 1948 Act and the Order is to provide a value for benefits that can be treated as a payment of wages in lieu of payment in cash and thus a means by which the employer can lawfully satisfy, as opposed to alter or reduce, the obligation to pay a minimum rate of wages. In short the obligation to pay a minimum wage can be satisfied in cash and kind but the obligation remains or rate of pay in cash and by the provision of benefits. The benefits are therefore provided as part of the wages payable.[19]It is clear that the contract between the Employer and Mr Borrill is intended to comply with the 1948 Act and the Order and in our judgment it should be construed and applied so as to do so. If this is done in our judgment the true construction and effect of the contract of employment is that it provides that Mr Borrill is to be paid the minimum wage of £160.85 per week and that this can be satisfied by the payment of cash and a value placed on the provision of board and lodging (by the payment of a sum to cover this to Mr Borrill's mother) up to the maximum value provided for in the Order (i.e. £60.32 per week). This is an approach and result that mirrors the scheme and effect of the 1948 Act and the Order.[20]No value is put in the contract on the "board and lodging paid to your mother". On our approach there is no need to do so. But on the approach urged by the Employer this lack of quantification could lead to difficulties. As a matter of fact in this case it does not because the sum paid to Mr Borrill's mother was equal to the maximum value specified in Table 13.1 in the Order but if it had been more than the maximum amount, or the mother indicated that she was no longer prepared to provide the board and lodging for a sum equal to or less than the maximum amount, the argument of the Employer would either:(a) lead to a result where less than £100.53 cash was paid which would be contrary to the provisions of the 1948 Act and the Order, or(b) lead to a result where the approach based on the introduction of figures, or the wording introduced in manuscript, was qualified by adding that the amount paid for board and lodging that could be deducted could not exceed the maximum value placed on it by the Order.[21]In any event, in our judgment for the reasons we have given the argument of the Employer that on its true construction the contract provides that Mr Borrill's rate of wages or payable by the Employer is to be £100.53 a week, or anything less than the minimum rate of wages set by the Order, produces a result that is contrary to the scheme and effect of the 1948 Act and the Order.[22]It follows that although we are of the view that on its true construction the contract of employment between Mr Borrill and the Employer accords with the 1948 Act and the Order we do not accept that it would do so if it has the construction and effect asserted by the Employer, namely that it provides that his weekly wage or pay is £100.53, or a sum equal to the minimum rate of wages set out in the Order less board and lodging paid to Mr Borrill's mother.[23]We repeat that in our judgment on its true construction the contract of employment provides that Mr Borrill's rate of pay or rate of wages is the minimum rate of wages specified in the Order (i.e. £160.85) and in accordance with the 1948 Act and the Order the statutory obligation to pay not less than that rate of wages is to be, or can be, satisfied by the payment of cash and the provision of board of lodging reckoned (up to a maximum value) as payment of wages in lieu of payment in cash.[24]On the assumption, and without deciding, that the Employer is right that notwithstanding the fact that s 221(2) ERA refers only to the amount which is payable by the employer the overall effect of s 221 ERA because it is dealing with pay and thus something that is generally paid to the employee, is that the amount has to be payable (not paid) to the employee, in our judgment the effect of the 1948 Act and the Order is that the amount payable under the contract of employment by the Employer to Mr Borrill is the minimum rate of wages (i.e. £160.85) which is to be, or can be, treated as being paid in part by the provision of board and lodging. The deeming provision of the 1948 Act and the Order which treats the provision of board and lodging as payment of wages in lieu of payment in cash has the effect that the amount payable by the Employer to Mr Borrill under the contract of employment is £160.85 (the minimum rate of wages).[25]It is not necessary for us to decide whether on its true construction the contract of employment imposed an obligation on the Employer to make payments to Mr Borrill's mother to secure the provision of board and lodging by her for Mr Borrill. We favour the view that so long as his mother was offering to provide the board and lodging at a rate not greater than the value placed on it by the Order, or such higher figure as the Employer was prepared to pay whilst still paying £103.53 cash to Mr Borrill, the contract of employment did impose such an obligation. In this connection we note that section 13 of the Order states that to enable an employer to treat benefits as payment of wages in lieu of payment in cash they must be provided in accordance with the worker's contract.[26]However during the course of argument Counsel for the Employer suggested that Mr Borrill could not compel the Employer to make payments to his mother for his board and lodging because the contract relating to board and lodging was with a third party (the mother), and the only obligation Mr Borrill could enforce was the obligation of the Employer to pay what the Employer contended was his week's pay, namely £100.53. We do not agree. But if this argument of the Employer was right in our judgment it would provide a further reason why the contract did not comply with the 1948 Act and the Order because the only obligation thereunder would be one to pay less than the minimum rate of wages.[27]The authorities relied on by the Employer were S & U Stores v Wilkes [1974] ICR 645 and Imperial London Hotels v Cooper [1974] IRLR 199 and in particular to paragraphs 19, 20 and 23 of this case. Counsel for the Employer also drew our attention to Cooner v Doal & Sons [1988] IRLR 338, and in his skeleton argument Mr Borrill's representative relied on Armstrong v Official Solicitor 50/86 RP for the dicta referred to in paragraph 9 of the Extended Reasons. We have not placed weight on this dicta albeit that it is in line with our conclusion.[28]Naturally we accept that in the Wilkes and the Cooper cases it was held respectively that expenses and the benefit of accommodation were not to be included in the employee's week's pay for the purpose of calculating the redundancy payment due. However in our judgment these two cases are not determinative of this one and do not set an approach or provide guidance that points to the conclusion asserted by the Employer. Naturally neither case deal with the effect of the 1948 Act and the Order and the closest to the present case is the Cooper case. But there the Tribunal had been asked to put a value on the free accommodation the employee was bound to occupy and the essential logic at paragraph 24 that the accommodation "was not money or money's worth paid into her hands" does not apply in this case because the 1948 Act and the Order quantify the maximum value that can be placed on the board and lodging and provide that its provision can be treated as payment of wages in lieu of payment in cash.[29]The Cooner case is one involving a different statutory scheme concerning minimum pay. The terms and effect of that scheme are not the same as those of the 1948 Act and the Order and in our judgment this case is distinguishable from the present one and like the cases in the last paragraph does not set an approach or provide guidance that points to the conclusion asserted by Mr Borrill. However, what the Cooner case does do is provide confirmation (should that be necessary) that the effect of a statutory scheme relating to minimum wages is, or may be, relevant in determining a week's pay for the purposes of calculating a redundancy payment.[30]We mention two further points:(a) in our judgment the approach of the Inland Revenue to the provision of board and lodging to Mr Borrill and other agricultural workers does not provide any real assistance to either side because it is concerned with different statutory provisions relating to the payment of tax, and(b) in our judgment having regard to the purpose of redundancy payments (as was done in the Wilkes case at 649E) the conclusion we have reached accords with that purpose and the purpose underlying the provisions of the 1948 Act and the Order that provide a minimum rate of wages for agricultural workers such as Mr Borrill.